Steam rises from a stack at a petrochemical plant in the Shunan industrial complex in Shunan, Yamaguchi Prefecture. Business investment by Japanese firms in the October-December period rose 8.5 percent when compared to the previous year, but the outlook is dim, government sources said Tuesday. | BLOOMBERG

Japan’s October-December business investment up 8.5%, but outlook dim

Capital spending by Japanese firms climbed 8.5 percent in the October-December period from a year earlier, the government said Tuesday, but a decline in corporate profits and an uncertain global economy may dampen business investment in the future.

Business investment by all nonfinancial sectors for purposes such as building plants and installing new equipment totaled ¥10.53 trillion, the Finance Ministry said. The pace of the rise slowed from an 11.2 percent increase in the previous quarter.

The data will affect revisions to Japan’s economic growth figures for the same period, with the Cabinet Office scheduled to release revised gross domestic product data on March 8.

Capital spending expanded for the 11th straight quarter, reflecting favorable corporate profits. The government of Prime Minister Shinzo Abe sees capital investment as key to shoring up the domestic economy, led by the private sector.

However, the outlook is unclear, with pretax profits at businesses in all sectors covered in the poll falling 1.7 percent from a year earlier to ¥17.76 trillion, marking the first drop in 16 quarters, or four years.

Takeshi Minami, chief economist at the Norinchukin Research Institute, said the smaller increase in capital investment may have reflected a slowdown in overseas economies.

“The gain may be stagnant (for the manufacturing sector) on the back of low economic growth and sluggish exports” for a while, but a significant decline is unlikely and corporate demand to replace or renew old equipment remains solid, he said.

Nonmanufacturers are expected to maintain a positive stance on investment to cope with growing inbound tourism demand, Minami added.

A preliminary GDP report released last month showed the economy shrank at an annualized 1.4 percent in the October-December period from the previous quarter in real terms, weighed down by weak consumer spending and exports.

Within the GDP data, capital spending — which accounts for around 15 percent of the nation’s GDP — rose 1.4 percent in the October-December period for the second straight quarterly growth.

On a quarter-on-quarter basis, business investment, excluding spending on software, decreased slightly, the ministry said.

Capital spending by manufacturers surged 10.2 percent from a year earlier to ¥3.66 trillion, led by communication firms boosting production capability for smartphone and vehicle components and automakers moving to increase new vehicle output.

Business investment by the nonmanufacturing sector grew 7.6 percent to ¥6.87 trillion, as retailers launched new outlets and renovated existing stores.

The drop in the pretax profits reflected a fall in sales of components for digital appliances such as personal computers as well as lower pricing for steel products due to oversupply, a ministry official said.

During the fourth quarter of 2015, the dollar rose ¥6.46 from a year before to ¥120.61 on an average basis, the official said.

A falling yen usually supports exporters by making Japanese products cheaper abroad and boosts the value of overseas revenue in yen terms, helping improve corporate profits and prompting firms to expand their investment.

The ministry surveyed 31,537 companies capitalized at ¥10 million or more, of which 23,343, or 74 percent, provided valid responses.